Retirement on hold as funds go backwards

The rising dollar and falling share markets have upset the retirement plans of thousands of Australians, with new figures showing a $16 billion collapse in managed fund wealth last year.

Further losses appear inevitable this quarter, as Australian shares have already fallen 6 per cent, American shares have fallen 5 per cent and British shares 10 per cent.

The dollar's rise this week through US60c has exacerbated the loss of value in overseas assets for Australian investors. In Australian dollar terms, US shares have lost 12 per cent and British shares 18 per cent.

The Bureau of Statistics data highlight the local impact of plunging international markets. Total funds under management dropped from $650 billion to $634 billion in 2002, despite compulsory superannuation forcing investment flows.

Lisa Montgomery, general manager of consumer group Infochoice, said investors - particularly those close to retirement - are moving into low-risk and lower-return investments.");document.write("

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"We're talking about older people here and they've already been burned once or twice and are not willing to put themselves in that position again. They have opted for cash investments because they're just sick and tired of worrying about it," Ms Montgomery said.

Steven Gamerov, an analyst with funds manager researcher Assirt, said the flow of new investments into managed funds dried up at the end of last year.

On Assirt's calculations, managed funds received net inflows of $1.2 billion last quarter, which was one-third less than the September quarter and 70 per cent lower than the December quarter in 2001.

The bureau's figures confirm investors have shuffled their assets out of shares into property and low-risk interest rate products.

"Investors have gone towards the more defensive asset sectors. Quite clearly they have been hurt by the falls that we've seen in global equity markets," Mr Gamerov said.

Investments in cash management funds jumped by $4.7 billion in the December quarter, or 7 per cent. Assets in cash deposits and property funds both increased by $1.4 billion, or 2 per cent.

By contrast, investors pulled $1.6 billion out of share funds.

But Mr Gamerov warned that investors may be shifting from shares at the bottom of the market into "safe" asset markets now at their peak. "The worry is that it's happening at the very wrong time," he said.

Australian shares picked up 3 per cent and US shares rose 10 per cent in the last three months of the year, while total managed fund assets rose only 1 per cent.

The below-market returns underscored recent criticism from all three of the government's financial regulators.

The Australian Prudential & Regulatory Authority said retail superannuation funds - generally owned by the big banks - under-performed and over-charged compared with non-profit superannuation funds for each of the past seven years.

The Australian Securities & Investments Commission and the Reserve Bank both queried financial advisers receiving commissions in exchange for referrals to the major retail managed funds as a conflict of interest that distorted advice.

Together, the regulators have exposed serious inadequacies in virtually every link of the wealth management chain and questioned the ability of the private sector to perform the public policy goal of protecting savings.